stamp duty question

richleeds

Hi

If property A is on sale at £300,000 and property B is on sale at £225,000 and the owners of each property are going to buy each others houses then due to the terrible market conditions and the fact the more house depreciation is likely, if property A reduced his asking price by £50k to £250,000 and property B did the same and reduced to £175,000 then the stamp duty would go down to 1% on A and no duty on B.

Any problems, issues with this?

thanks

rich

lincroft1710

I think there may be such a thing as Deed of Exchange which would just mention the £50K payable.

richleeds

Hi

Thanks, as in we would only pay the difference in cost between the 2 and not actually pay in full for the property?

Mutton_Geoff

we would only pay the difference in cost between the 2 and not actually pay in full for the property?

You cannot avoid tax in this way. See Section 241 of the Finance Act and Section 4.8.3 of the Stamp Taxes Manual (HMRC website).

"Market Value" (and proof of) will apply.

lincroft1710

I'm not sure if it can still be done but several years ago I used to see documents of sales of houses with a low price and reference to exchange with another house. These documents originated from Stamp Duty Office. Best to check with your solicitor.

molly1706

So if there is a house on the market for £180 000 and we paid £170 000 would we have to pay stamp duty as the house is 'worth' over £175000? Or is it the agreed sale price which must be under £175000?

Mutton_Geoff

Fair market value isn't the price a house is advertised for, it's the price it reasonably sells for. Stamp tax is paid on the price paid for the house/land at completion, not any other figure. A +/- £5-10k difference won't interest the tax man. Avoidance of the order described by the OP will.

At the other end of the scale, they can get excited when they see a house sold for £499,000 and £50,000 paid for "carpets & curtains" thus neatly avoiding £7k of stamp duty.

The current system is nonsense anyway and causes price bunching around the thresholds. This would be avoided if the tax was charged more fairly in a sliding scale like income tax (ie 0% on the first £175k, 1% on the amount between £176k and £250k etc)

molly1706

Thanks Mutton Geoff

richleeds

Thanks everyone for the info/comments

Doozergirl

The market value of a house is subjective. House prices change. It's not unheard of for a house marketed at £225,000 to sell for £175,000 and houses originally priced at £300k sell for £250k quite often, I'm sure.

A house can be sold for less than it is marketed at. We've bought houses and sold them for a lot more - it doesn't mean that we didn't pay market value, otherwise someone else would have offered more at the time.

The issue you may well have is that if the properties need mortgages. By buying at a reduced price, you increase the ratio of Loan to Value and it could be more difficult to obtain a good % rate or a mortgage at all.

eg. If you needed a £175,000 mortgage on a house you were paying £225,000 for, you would be applying for a mortgage at 77.7% LTV - a healthy deposit. If you need a £175,000 mortgage on a house you're paying £175,000 for, it would be a 100% LTV mortgage, which you simply can't get anymore. It doesn't matter if it's worth more - a mortgage company will not value at more than you are paying.